ADNOC to buy Covestro for $16.3 billion

Following negotiations that lasted more than a year, Abu Dhabi National Oil Company (ADNOC) has agreed to acquire the German plastics producer Covestro for $16.3 billion.

Covestro recorded sales of about $15.9 billion in 2023. Its main products are polycarbonates and precursors for polyurethane such as toluene diisocyanate. Part of the German firm Bayer until 2016, Covestro has 17,500 employees and 49 production sites worldwide.

The acquisition “represents a pivotal step for both organizations and embodies our disciplined approach to investing in strategic assets that drive long-term value and unlock new growth opportunities, while reinforcing our commitment to diversifying ADNOC’s portfolio,” ADNOC CEO Sultan Ahmed Al Jaber says in a press release.

The deal is the latest in a long line of chemical company purchases by Middle Eastern oil and gas companies seeking to diversify into higher-value downstream products. ADNOC says it plans to use Covestro to help it become a top-5 global chemical company.

As well as producing fossil fuels ADNOC is the majority owner of Borouge, which annually produces more than 5 million metric tons of polyolefins. In December, ADNOC agreed to buy control of the fertilizer producer Fertiglobe for $3.6 billion. In May, ADNOC ditched its plan to acquire the Brazilian petrochemical giant Braskem.

Analysts say the Covestro deal is a big step forward for this strategy. “Adnoc may, we suspect, wish to use Covestro as a centrepiece for building a global chemicals platform,” Berenberg Bank stock analyst Sebastian Bray stated in a note to investors in August.

With its focus on circular products and becoming climate neutral by 2035, Covestro may seem an odd fit with ADNOC, which is one of the world’s biggest producers of fossil fuels and plans to increase oil production. But in the press release, Al Jaber calls Covestro a “natural fit” and says “complementary growth strategies, shared commitment to advanced technologies, innovation and sustainability are key cornerstones of our partnership.”

ADNOC has agreed to maintain Covestro’s sustainability goals. The Abu Dhabi company says it will not sell, close, or significantly reduce any of Covestro’s activities until at least the end of 2028. It also vows to recognize the firm’s existing general works agreements and the rights of works councils in Germany.

The price ADNOC will pay is a 54% premium over Covestro’s share price before its interest in the firm became known in June 2023. The purchase is subject to shareholders with at least 50% of Covestro’s shares agreeing to the offer.